Fitness Studios & Gyms: Payroll Compliance Guide (2026)

The rules that reach fitness businesses specifically

A commissioned trainer can be exempt from overtime under FLSA section 7(i) only if three conditions are met: the employer is a retail or service establishment, the employee's regular rate exceeds one and one-half times the minimum wage for every hour worked in any week with overtime, and more than half of total earnings in a representative period of one month to one year are commissions. If any condition fails, overtime is due at time and one-half for hours over 40.

Tips paid by customers can never be counted as commissions for the section 7(i) exemption, and a retail or service establishment is one where 75 percent of annual dollar volume is not for resale and is recognized as retail in the industry. Mandatory service charges paid to service employees may count as commissions.

Instructors paid per class or per session are non-exempt unless an exemption applies, and their overtime must be computed on the average hourly rate found by dividing total pay for the workweek by total hours actually worked, including time outside the class. Where one employee works at two or more rates in a week, the regular rate is the weighted average.

The duties every employer carries

Federal income tax withholding, Social Security and Medicare, FUTA, deposits on the monthly or semiweekly schedule the lookback period sets, quarterly Form 941, annual W-2s and, for fitness businesses paying contractors, 1099-NEC at the $2,000 threshold in force for tax years after 2025. A late deposit starts at a 2 percent failure-to-deposit penalty and climbs to 15 percent.

To rely on the section 7(i) commission exemption, the employer must keep accurate records of hours worked each workday and workweek and of earnings, and must select a representative period of at least one month and not more than one year to test the commission share. Without hours and earnings records the employer cannot substantiate the exemption.